Franchising Carries Risk

Cape Cod Times:

Franchising is a popular way for entrepreneurs to fast-forward their small business ownership ambitions. Franchisors provide a tested and proven base structure of the business, freeing their franchisees from having to invent the operational wheel.

Franchisors also provide ongoing guidance, innovations, and tested marketing materials. And new opportunities emerge on an almost daily basis. According to the International Franchise Association, 900 new concepts were launched between 2003 and 2005.
But even with its many attractive advantages, franchising has many risks and challenges that need to be considered. The biggest mistake is believing that franchises never fail. Although the failure rate is much lower than that of independent businesses, the franchisee still must have the necessary commitment and drive to make the franchise successful.

Purchasing a franchise also requires a substantial financial commitment, one that may require applying for a small business loan. Franchise owners also have no special legal protection after they purchase the business. The Uniform Franchise Operating Circular protects the buyer before the sale, but it’s signed, so you are legally required to abide by its rules and requirements.

That’s why it’s important for prospective franchise owners to thoroughly research their franchising opportunity. Don’t rely solely on the Internet. Literally ‘walk the street’ and ask people if this kind of business is needed in the neighborhood. Study the competition, what they are doing, and how can you do it better. Read more.